U.S. to bail out Big 3?

[ScrapMetal]

http://www.autoblog.com/2008/1...sider/

It's funny how the system of Free Market, the system the U.S. stands so dearly behind, is the same system that is causing the U.S. auto manufactures to crumble. I'm sure no one is cheering for the Big 3 to fail, but they made a lot of stupid mistakes, and let foreign auto manufactures surpass them. If my credit goes down the drain because of bad decisions, no one bails me out. All this talk of government bailouts for stupid companies doesn't sound like a free market to me. Animals go extinct when they're too stupid to evolve, "God" doesn't bail them out.

Please discuss, all this bailout talk pisses me off. Someone bail me out damn it!

[hsckris]

I generally agree. It is my understanding that the previous bailout was "necessary" to prevent a recession the likes of which we have never seen in the U.S.

In this case I fail to see that logic working. Don't get me wrong -- I do not want to see GM or Ford fail (I could care less about Chrysler). The problem is that the federal gov't bailed out Chrysler in the 80s, so there is a precedent for this sort of bail out.

I will say that GM & Ford have been making good products for several years now, there was just a lot of people in the U.S. who didn't notice. Obviously not all of the offerings were winners, but in general they have made some solid cars/trucks for a few years now. From a sales persepctive, it isn't just the big three. Auto sales in the U.S. are down tremendously from 2007. http://online.wsj.com/mdc/publ....html

The real problem for GM is that though sales were down, they still sold more cars than some other companies who are not in financial trouble. (as of 11/3, YTD car sales, previous link). That means GM is selling enough cars to theoretically be profitable, but just isn't -- last I heard that was b/c of their junk status (meaning high interest loans, etc), UAW & retirement benefits, etc. I'm not sure a bailout will fix that. Throwing good money after bad rarely works.

Letting them fail will however have a broadly felt impact on the US economy, perhaps even the world. GM & Ford at least are global companies, though Chrysler really isn't. I'm just not sure a bailout will truly save GM or Ford, and I'm also unsure as to the net total effect of letting them fail.

[Jesda]

Let them fail. Like the UK's auto industry, other firms will acquire the pieces for cheap, rehire the talent, and run the show at a lower cost.

The British auto industry, despite a lack of domestic brands run by British managers, is thriving.

The people who will suffer are the Jesdas of the world who like particular GM products. Oh well.

[HashiriyaS14]

The people who will suffer are the Jesdas of the world who like particular GM products. Oh well.

Na.

If GM were to fail, Lutz would be picked up by whomever took over.

GM no longer has a product problem, they make GREAT cars now. They have a union problem.

90% of the product lines could continue precisely as-is and be very profitable if they had non-union labor.

The UAW is just pissing in everyone's cheerios.

[ScrapMetal]

I generally agree. It is my understanding that the previous bailout was "necessary" to prevent a recession the likes of which we have never seen in the U.S.

At first, I thought the same way. I felt the previous bailout was necessary, but now it just pisses me off. What has been done with all this money? Unemployment keeps rising. October being another new record for unemployment rates. Foreclosure keeps rising, and I don't see many companies hiring at the moment. The thing that pissed me off the most was those AIG bungholes who spent almost half a million dollars on some hotel party. That was tax payers money, why weren't these people put in jail? I agree with Jesda, they should let the U.S. auto manufactures fail. I'll take it one step further, they should have let all of those companies fail. I think they jumped on this bailout too early. The U.S. should have bought all these bad mortgages from these banks, and worked out a payment plan with the home owners. People are still losing their homes, and I don't see anything getting done.

Sorry for the wall of text.

[smockers83]

At first, I thought the same way. I felt the previous bailout was necessary, but now it just pisses me off. What has been done with all this money? Unemployment keeps rising. October being another new record for unemployment rates. Foreclosure keeps rising, and I don't see many companies hiring at the moment. The thing that pissed me off the most was those AIG bungholes who spent almost half a million dollars on some hotel party. That was tax payers money, why weren't these people put in jail? I agree with Jesda, they should let the U.S. auto manufactures fail. I'll take it one step further, they should have let all of those companies fail. I think they jumped on this bailout too early. The U.S. should have bought all these bad mortgages from these banks, and worked out a payment plan with the home owners. People are still losing their homes, and I don't see anything getting done.

Sorry for the wall of text.

A couple of things. You talk about employment a little bit. Employment statistics are a lagging indicator for one thing, meaning that firms cut employees in response to something that has already happened. The recession in the early 2000s, unemployment maxed out 2 years after the bottom of the recession. The bailout was not intended to give people jobs, it was intended to put liquidity back into the credit market, which is why its only available to financial firms. The bailout wasn't intended to save people from losing their homes either as I just explained. Large, national banks on the other hand are creating programs to halt foreclosures on mortgages they service and are working with those who are threatened by foreclosure. This is in the best interest of the homeowner and the bank because the bank gets their money, adds to the liquidity of the lending market, and the homeowner remains a homeowner.

I'm not sure which AIG event you're talking about, but the last one that everyone's been talking about was blown out of proportion.

If we let the automakers fail, unemployment will double to 10%.

Again, the bailout wasn't to keep people in their homes. But now with the financial backing of the government, the banks can now work with borrowers. If the government bought bad mortgages, how good would those returns be? Better than the ones investing in financial firms? I doubt it.

[ScrapMetal]

I'm not sure which AIG event you're talking about, but the last one that everyone's been talking about was blown out of proportion.

Blown way out of proportion? If I lend you $1,000 so you can pay your bills for the month. You don't then go to the club and "make it rain". Which is exactly what these guys did. AIG has already done this twice! They spent around $400,000 on a "hotel conference" right after they received $85 billion from the government. And about a month later, they did it again, spending around $300,000 on another "hotel conference". Why aren't people being put in jail?

http://www.foxnews.com/video-s...38610

[smockers83]

Yup, that would be the one. AIG, the corporation itself, paid a reported $23,000 or something like that for that particular conference. The rest of it was paid for by the independent financial planners of AIG. What the conference was was product training for the planners in order to increase revenues. There's misinformation on this story.

[Cold_Zero]

As Andrew Wilkow said today, "I have a problem with taking money from American Citizens to bailout an American Company that produces a product that the American People don't want to buy."

[Loki]

I heard a great theory of what would have saved the big 3 from an old man while waiting to get my car inspected. All employees of Ford, GM or Chevy must own a Ford, GM or Chevy respectively. It took all my willpower to keep from saying, "Just because someone works for Ford doesn't mean they shouldn't be allowed to own a nice car."

[Bubba1]

I think Chapter 11 is inevitable, because a government cash infusion only postpones their destiny. The big 3 have not really addressed the issues that got them into their current predicament.

[smockers83]

The big 3 have not really addressed the issues that got them into their current predicament.

Yeah, because the head of the UAW is there. The committees will rip into the UAW, but the CEOs aren't going to.

[smockers83]

Some sort of agreement in the House has been made. No details coming out though.

[AZhitman]

It's a no-go. Thankfully.

I was listening to some interesting commentary on this...

Our president-elct doesn't seem to comprehend that a restructuring does NOT mean GM, Furd, and Crapsler "go away". They continue to function, albeit somewhat differently, under bankruptcy.

Bankruptcy for a company is NOT always a bad thing, but a necessity that results from decades of poor choices (just like personal BK).

Here's the deal - US automakers, because of the unions (which I despise with every fiber of my being), incur costs of roughly $80 per hour to build their wares.

"Import" automakers (most of which are no less "American" thn the Big 3) have costs of around $30 per hour.

The ONLY variable? Retarded, fluff-filled union contracts.

Renegotiate the contracts, and your costs drop. Sure, some workers will make less. Some may have to be let go. But that's life. Building cars IS NOT and SHOULD NOT BE "corporate welfare".

When the guy who serves as the backup for the windshield installation machine adjuster makes $38 per hour to NOT TOUCH ANYTHING, there's a probem. Note that he can theoretically pull a full retirement AND benefits for the rest of his life without EVER lifting a finger (provided the guy in front of him never needs backup). That's just plain wrong.

The Associated Press presented compensation (wages, pension and health benefits) comparisons for the various automakers last year during negotiations between General Motors and the United Auto Workers union (see USA Today, September 17, 2007, GM-UAW Back at Bargaining Table; Auto Stocks Rise).

It noted average hourly compensation paid by automakers as:

Chrysler: $75.86 (58 percent more than Toyota)General Motors: $73.26 (52.6 percent more than Toyota)Ford: $70.51 (46.9 percent more than Toyota)

Toyota (U.S. workers only): About $48

President-elect Barack Obama has made his support for unions clear (see The Arizona Republic, November 12, 2008, Union Boost More Likely with Obama and Chicago Tribune, November 11, 2008, Obama Union Support Far above Average in Michigan). As noted in The Arizona Republic article, business leaders fear the new president's strong support of unions will further push up their costs at a time they can least afford it, which could also make business and economic recovery problematic.

Romney wrote a great article on the topic:

http://www.nytimes.com/2008/11...?_r=1

[wawazat8402]

I believe some unions have their place. In different public service sectors, I think theyre a requirement. When my dad was still an active firefighter, they would have been paid even less had it not been for the union. With the union he still only made about 48k a year BEFORE taxes. In the private sector, I think they have been given way too much negotiating power. When they start regulating how many people must be on the job to replace a manhole cover and how many flag hours those workers will be paid, it gets ridiculous and wasteful. I think the UAW got very greedy and worked themselves into this hole and they deserve to be in it. I was aware of Obama's seemingly all out support for unions and it was one of the things I really disliked about his views.

Im with most of you on my dislike for unions in general, but there are a certain few that need to be there. If it werent for the unions in these select sectors, the open market would not compensate for the true value of jobs such as teachers, firefighters, police, etc.

[smockers83]

$10,000,000,000.

That's roughly how much extra each year the domestic industry pays its union workers compared to Toyota, and that's a pretty conservative number. The three pay an average of $25 more/hour compared to Toyota per Greg's data. For one week (40 hours), one person, that's $1,000. A year at 50 weeks worth of work is $50,000. Multiply that by 200,000 employees = $10,000,000,000.

The UAW needs to bring their labor force back to the market price. If they don't, these companies will never survive, even if they do get the loan. I've ran these numbers before here on the forum and they were more accurate, but I have no idea where they would be.

[OriginalWheelman]

The UAW (and almost every union I've seen) are nothing but legal bullies. They threaten you with pulling your labor force out over and over. The UAW renegotiate contracts more than football players, and every time the automakers get it worse. Bailing them out is just making EVERY American pay for the UAW's extortion. I do not like GM's cars. I do not buy GM cars for thise reason, even though I could afford a new GM for what I pay for a used Infinity, I am getting a worse deal. So now I'm supposed to agree to my tax dollars saving them? I don't think so. If I wanted to save GM, I'd go buy a car. Let them sink.

[audtatious]

Let them file Chapter 11 which will allow them to break their union contracts (so I heard somewhere). I'm sure there are plenty of non-union workers who need employment in Detroit.

UAW is trying to secure funds to cover their pension plans. It's not like they have not cut them back as it is.